The Odessa Supply Company is considering obtaining a loan from a sales finance company secured by inventories under a field warehousing arrangement. Odessa would be permitted to borrow up to $300,000 under such an arrangement at an annual interest rate of 10 percent. The additional cost of maintaining a field warehouse is $16,000 per year.
Determine the annual financing cost of a loan under this arrangement if Odessa borrows the following amounts:
a. $300,000
b. $250,000